Week In Review. Comcast Proves Innovation Pays Off; Will Verizon Buy Charter?
1. Comcast Proves Innovation Pays Off
Comcast posted another positive quarter in terms of subscriber acquisitions, adding 80,000 new viewers, for a total net gain of 160,000 for 2016. This was their best year in over ten years, an impressive showing at a time when the pay-TV industry has been slowly leaking subscribers. More positive news included the addition of 400K broadband subscribers in Q4, bringing the year’s total up to 1.4M. (The pay-TV market is far more saturated than the broadband market, and thus the latter has more room for growth.)Comcast attributed the win to positive buzz around their X1 set-top box, a device that looks like it was designed sometime in the 2010s, which puts it head and shoulders above other MVPD set-top boxes, which look like they were designed sometime in the 1990s.The X1 is currently installed in about one-third of Comcast households, but during yesterday’s earnings call, Comcast announced they were looking to raise that number, so that at least 60% of Comcast users would have the X1 box by the end of this year.Another big advantage for Comcast and its X1 box is the fact that X1 now has full Netflix integration, the result of a deal Comcast struck with the streaming giant last year. Not only are Netflix’s programs integrated into the Comcast program guide, but Comcast subscribers can even subscribe to Netflix via Comcast, keeping everything on one easy bill.Why It MattersThanks to a commitment to innovation, Comcast went from “#ComcastSucks”—possibly the most hated company in America, to a company that’s adding subscribers at a faster rate than any of its competitors. And it’s not because their customer service has dramatically improved—they still revert to form often enough. Their success is due to their innovative X1 box and the fact that Comcast was not afraid to introduce an interface that people actually wanted to use. More than friendly tech support, a state-of-the-art interface conveys “we value our customers”, while the antiquated UIs other providers continue to push on customers is the TV equivalent of a department store where the merchandise is strewn all over the place and sales help impossible to find—a giant F.U. to the customer base.What You Need To Do About ItIf you’re an MVPD, you need to get with the program. Cox is privately held and thus does not reveal numbers, but their top PR guy noted that they had their best year ever since 2008 after introducing the Contour, a white-labeled version of Comcast’s X1 box.While we get that not everyone wants to rely on Comcast for their set top box, the solution is to then go design your own and make it better than X1. If not a set top box, then an app that lives on tablets and streaming devices. Something, anything that puts a user friendly recommendation-based interface in front of viewers. Because if you don’t, they’ll eventually go somewhere else.Innovation isn’t just for MVPDs: if you’re a network or an advertiser, take this as a lesson on the value of innovation and how much consumers appreciate it when you do it and hate it when you don’t.
2. Will Verizon Buy Charter?
A number of industry publications are reporting that Verizon has started preliminary talks with Charter to discuss a merger.The deal would give Verizon additional distribution in key markets, while giving Charter access to the nation’s largest mobile provider. When Verizon introduces 5G (likely sometime in the next 12 to 36 months) the merger would likely allow Charter pay-TV subscribers to watch TV on their mobile devices without dipping into their data plans. (In industry parlance, this is known as “zero rating”.)Verizon has made a number of seemingly random deals over the past few years, from Intel’s OnCue to Chernin Group’s Vessel to AOL and (possibly) Yahoo. Their strategy stands in sharp contrast to rival AT&T, whose plans (buying DirectTV and then Time Warner) have been centered around first increasing their footprint and then adding content—Verizon seems to be going at it the other way around, if there’s a consistent strategy at all.Why It MattersThe two telcos represent two different paths for surviving in the digital age: buying more distribution or buying more content. Comcast, their leading rival, has gone the content route, buying NBCU while looking to maintain their presence as the largest provider by adding mobile later this year.It will be very interesting to see how these mergers fare in Washington: while President Trump has come out against media mergers, his new pick for FCC Chairman, Ajit Pai, is very much in favor of them.What You Need To Do About ItNot much outsiders can do. Grab your popcorn and see how it plays out. If you are considering any sort of M&A, we’d advise waiting to see how the new administration treats the AT&T/Time Warner deal. With or without CNN.
